Saturday, July 23, 2011

Mumbai: In a move that will facilitate greater trade transactions in the rupee, the Reserve Bank of India has allowed non-resident importers and exporters to hedge their currency exposure in the rupee through forward foreign exchange contracts.

With exports and imports invoiced in rupees, non-resident importers and exporters can now hedge their currency risk with banks in India through their bankers having rupee vostro accounts in India, the RBI said in a statement. The contracts would be on a deliverable basis, the central bank said.

Firms with proof of an underlying trade deal denominated in rupees can now use either rupee forwards or options contracts to hedge their deals, it said.

The contracts, once cancelled, cannot be rebooked but may be rolled over on or before maturity subject to maturity of the underlying exposure. Once cancelled, gains can be passed on provided there is no rebooking.

In case of extension, rollover can be permitted once, subject to conditions.

BANGALORE: IDFC Private Equity , one of India's largest risk capital investors has put in Rs 150 crore to acquire a minority equity stake in Chennai based GVR Infra Projects Limited. GVR will use the funding for its projects in engineering and contracting space that includes the roads sector.

"We believe that the potential for growth in infrastructure is immense with lot more still to be achieved, " said GVR managing director K Ganga Prasad. Public infrastructure outlays will double over the next five years, to $1 trillion, with the private sector accounting for between 40 per cent and 50 per cent of the total, according to Bain & Company, a global management consulting firm that released the India PE Report in April this year.

Over the next five years, the construction industry alone will need an additional $150 billion to $200 billion to fund assets and working capital, according to the Bain report.

This is the third investment by IDFC Private Equity in the roads sector. Previously the firm which invests out of a total corpus of $ 1.3 billion, had invested in L&T Infrastructure Developers and Ashoka Buildcon. Over the last eight years it has made 33 investments. Some of these investments include deals in GMR Infrastructure, Gujarat State Petronet, Delhi International Airport,Manipal Global Education, Moser Baer Solar Limited and Viom Networks.

Some of the top exits for the fund include the exit through a private sale from L&T Infrastructure as well as the exit through an initial public offer listing of Ashoka Buildcon last year.

Civil engineer G Venkateswara Rao along with Ganga Prasad, an entrepreneur, together incorporated the company in 2001 as GVR's key promoters. The company clocked revenues of about Rs 1,000 crore in FY 2011 and has an order book of Rs 4,200 crore.

IDFC said they invested in the company because of the strong management team and order book position coupled with profitable growth over the years. " We are extremely positive on the roads sector as we expect strong order inflows at the national and state level," said S G Shyam Sundar, Partner at IDFC Private Equity.

"We also believe that sectors like railways and urban infrastructure where GVR has a presence will open up in a big way in the coming years," Sundar added. Some of the GVR portfolio projects include Hyderabad's Outer Ring Road project, Hubli-Lakshmeshwar (SH-73) in Karnataka and Bangalore-Hosur (NH-7) amongst several others.

In addition to roads, GVR is also executing projects in sectors such as urban infrastructure, railways and irrigation across eight Indian states. Alongside its core in-house engineering, procurement and construction business, GVR has a portfolio of five Build Operate Transfer projects.

Veda Corporate Advisors, a Chennai based investment bank was the sole advisor to GVR on this deal.

Union Bank of India’s net profit fell 22.8 per cent for the first quarter ended June to Rs 464 crore, from Rs 501 crore in the year-ago period. Higher provisions for non-performing loans and restructured assets led to a lower net profit.

Sensing a fall in the demand for credit from corporates due to the uncertain economic climate, the bank has scaled down its credit growth target to 19 per cent from the earlier estimate of 22 per cent for FY12. It has also reduced its deposit growth estimate to 17 per cent from 19 per cent for the current financial year, said bank Chairman and Managing Director M V Nair.

The bank’s total income for the reporting quarter rose to Rs 5,399.68 crore from Rs 4,120.6 crore in April-June 2010. Its net interest income for the quarter increased by 18.11 per cent and stood at Rs 1,590 crore.

Its net interest margin improved to 3.10 per cent from 3.03 per cent a year ago, the bank said in a statement.

Its provision for NPAs was Rs 185 crore and Rs 29 crore for the restructured assets portfolio. The provision was in line with the Reserve Bank of India’s revised norms.

Nair said most slippages, loans turning into non-performing assets, were in agriculture, retail and the small- and medium-size enterprises segment. The pain (from higher reporting of NPA) is expected to continue in the second quarter, Nair said. Public sector banks are expected to move borrowers’ accounts to an automated bad loan alert system.

Its deposits rose to Rs 1,98,542 crore from Rs 1,71,080 crore. The share of low cost deposits – current and savings deposits – was 31.51 per cent. Its total advances were up 16.70 per cent to Rs 1,45,567 crore.

Mumbai: The Reserve Bank on Friday said it will soon put into circulation new coins in five denominations, ranging from fifty paise to Rs 10.

“The RBI will shortly put in circulation coins of the fifty paise, one rupee, two rupees, five rupees and ten rupees denominations,” the apex bank said in a statement.

The fifty paise, Re 1 and Rs 2 coins would be of ferritic stainless steel containing iron and chromium, while the Rs 5 coins would be made of nickel brass with a varying composition of copper, zinc and nickel. The Rs 10 coins would be made of copper and nickel.

Fifty paise is the lowest valid denomination in the country now after twenty-five paise coins were withdrawn from circulation from June 30.

All the new coins would be circular in shape, with a shape and outside diameter between 19 to 27 millimetres, the statement said.

The coins would shall bear the Lion Capitol of the Ashoka Pillar and the word 'India' in English on one side and their denominational value on the reverse side.

Axis Bank on Friday said its net profit for the quarter ended June 30 rose 27 per cent to Rs 942.3 crore from Rs 741.9 crore a year earlier. Higher fee income and lower provisions, owing to improving asset quality, aided the bank's earnings during the quarter.

Net interest income, or the difference between interest income and interest expenditure, rose to Rs 1,724 crore—a 14 per cent rise compared to the net interest income in the year-ago period.

The net interest margin declined by 43 basis points from a year earlier and 16 basis points sequentially to 3.28 per cent.

Public sector lender, Allahabad Bank, on Friday reported a 20.45 per cent increase in net profit to Rs 418.13 crore in the first quarter of the present financial year, against Rs 347 .14 crore in the same period last year.

Backed by higher yield on advances, the bank reported a net interest margin of 3.40 per cent in the last quarter, against 3.10 per cent in the same period last year.

Friday, July 22, 2011

New Delhi: The government approved merger of State Bank of India Commercial and International Bank Ltd (SBICI) with its parent bank SBI.

SBICI, with two branches, is a wholly owned subsidiary of State Bank of India (SBI) and functions as a private sector bank offering an array of financial products and services. "It's performance over the period of its existence has not been consistent. It has not paid any dividend since its inception...In the overall analysis, continuation of SBICI in its present form would not create a substantial organisation with a separate niche," Information and Broadcasting, Ambika Soni told reporters after a Cabinet meeting here.

So also as an independent bank, SBICI has had to maintain a full-fledged, elaborate administrative setup to conform to regulatory requirements, she said, adding, the cost of maintaining such a structure is disproportionate to the level of operations of the SBICI.

The proposed merger will help in maintaining the administrative structure of SBICI as both its branches in Mumbai will be easily absorbed in the operations of the parent entity, she said.

While no present beneficiary of its parent SBI would be affected, the number of clients of SBICI will have access to the bigger network of SBI, she said.

SBICI was set up in 1994 after taking over the Indian operations of the erstwhile Bank of Credit & Commerce International Ltd (BCCI), which went into liquidation in 1991.

It's net worth stood at Rs 128.74 crore on the capital base of Rs 100 crore. It had total business (deposits and advances) of less than Rs 700 crore, with a return on asset of 0.49 per cent.

As per RBI guidelines, the minister said, for ownership in private sector bank, the bank's capital had to be raised to Rs 300 crore. The existing business model of SBICI and the returns generated by it over the years do not justify capital infusion, she said.

As of March 2011, SBICI earned a net profit of Rs 4.21 crore.

The board of SBI had cleared amalgamation of SBICI with itself in 2008.

SBICI's capital adequacy ratio (CAR) stood at 28.16 per cent at the end of March 2011.

YES Bank on Thursday said its net profit for the quarter ended June 30 rose 38 per cent to Rs 216.1 crore from Rs 156.4 crore a year ago. Higher interest income and lower provisions contributed to the bank’s earnings.

The private sector bank, however, shrunk its balance sheet by 3.5 per cent sequentially because of a reduction in advances and deposits. Advances declined 3.7 per cent sequentially for the first time in 10 quarters. Deposits fell 5.1 per cent from a quarter ago. The size of the balance sheet, however, expanded 39 per cent from a year ago to Rs 56,963.6 crore.

The bank had adopted a cautious stance in offering loans, as the economic environment was uncertain, Rajat Monga, group president for financial markets and chief financial officer, said. However, he declined to comment on how long the bank would take to consolidate its balance sheet.

On an annual basis, the bank's advances grew 26 per cent to touch Rs 33,104.2 crore as of

June 30. Customer assets, or the bank's investments in non-convertible debentures and other debt instruments issued by companies, was Rs 4,348.8 crore.

Deposits were also up 44 per cent from a year ago at Rs 43,575.9 crore. The share of low-cost current account and savings account (Casa) deposits was at 10.9 per cent of total deposits.

Net interest income, or the difference between interest income and interest expenditure, rose 35 per cent from a year earlier to Rs 354.2 crore. The net interest margin narrowed 20 basis points from a year ago, but remained stable sequentially at 2.8 per cent.

The bank’s non-interest income rose 15 per cent year-on-year to Rs 165.3 crore during the quarter. The growth in transaction banking, financial advisory and branch banking fees aided the growth in non-interest income. Net provisions narrowed to Rs 1.5 crore from Rs 13 crore in the year-ago period, owing to a strong recovery and improving asset quality. The gross non-performing asset ratio rose by six basis points from the year-ago period to 0.17 per cent.

Backed by robust growth in net interest income, Kotak Mahindra Bank posted a consolidated net profit of Rs 416 crore for the quarter ended June, a rise of 27 per cent over the net profit of Rs 328 crore in the year-ago period.

The bank's total consolidated income rose 16.3 per cent to Rs 2,709.6 crore from Rs 2,328.7 in the corresponding period of the previous financial year, while net interest income rose 22.2 per cent to Rs 920 crore. The good growth in net interest contributed to the bank's profit, said Executive Director Dipak Gupta.

However, the net interest margin (NIM) declined to five per cent from 5.4 per cent in the year-ago period, owing to the rise in cost of funds. The private sector bank expects to maintain NIM at five per cent in 2011-12, said Chief Financial Officer Jaimin Bhatt.

On a standalone basis, the bank’s net profit for the first quarter rose 35 per cent to Rs 252 crore, while the net interest income rose 18 per cent to Rs 568 crore from Rs 483 crore in the year-ago period.

The bank's consolidated loan book rose 36 per cent to Rs 44,699 crore from Rs 32,978 crore a year ago. Advances rose 39 per cent to Rs 32,339 crore, compared with Rs 23,189 crore in the corresponding period of the previous financial year, while deposits rose to Rs 31,047 crore from Rs 24,058 crore a year ago. The share of current account and savings deposits stood at 27 per cent as on June 30, against 28 per cent a year ago.

Gross consolidated non-performing assets declined to Rs 717.4 crore from Rs 935.7 crore at end of June 2010. The consolidated capital adequacy ratio was 18.4 per cent, while Tier-I capital ratio stood at 16.9 per cent.

The bank’s stock declined three per cent on Thursday to close at Rs 475.9 on the Bombay Stock Exchange.

Thursday, July 21, 2011

MUMBAI: At a time when rising defaults from education loans is haunting Indian state-run lenders, the government has asked banks to increase share of such loans in total credit portfolio.

Under pressure from the government, banks - that had turned reluctant to fund more students - have decided to revamp their education loan schemes by increasing the credit tenure and funding more than one person per family for loans up to 4 lakh.

"The revised scheme is forwarded to the government. It will be more customer-friendly and cover large number of applicants," said K Unnikrishnan, deputy chief executive, Indian Banks Association , which recommended the modifications to student loans after reviewing the current model.

At present, banks do not seek collateral on education loans up to 4 lakh, loans above 4 lakh require joint application and collateral.

IBA has proposed that banks will now consider more than one member of the family for loans below 4 lakh. Currently, as a safeguard measure against defaults, most banks don't give loans to more than one member of a family.

With an improved yield on loans, LIC Housing Finance on Wednesday posted a 21 per cent growth in net profit at Rs 256 crore for the first quarter ended June 30, as against Rs 212 crore a year before.

Total income for the reporting quarter ended June rose 40 per cent to Rs 1,418 crore, as against Rs 1,015 crore in April-June 2010, said chief executive officer V K Sharma.

However, its margins were under pressure. The Net Interest Margins (NIM) for Q1 dipped to 2.78 per cent from 3.01 per cent a year before. With improvement in the availability of resources and reasonable rates on market borrowings, it expects to maintain NIM at 2.7-3.0 per cent in 2011-12, Sharma said.

The company recorded growth of 15 per cent in individual loan disbursements in April-June. Individual loan disbursements stood at Rs 3,468 crore in Q1, as against Rs 3,018 crore in the same period of 2009-10. Total disbursements, including loans, to developers stood at Rs 3,545 crore for Q1, up from Rs 3,392 crore in the corresponding quarter.

The mortgage portfolio as on June 30 was up 32 per cent to Rs 52,876 crore, as against Rs 40,030 crore as on June 30. Gross Non Performing Assets (NPAs) were 0.84 per cent as against 0.92 per cent a year earlier.

Its share price closed 2.8 per cent lower on the Bombay Stock Exchange on Wednesday, at Rs 217.75.

Wednesday, July 20, 2011

Boston: Under the scrutiny of the US authorities for its tax-evading clients, financial services giant HSBC has said it will severe ties with hundreds of its wealthy American clients, including those of Indian-origin,who have accounts in offshore locations.

In a letter sent earlier this month to US customers who have accounts with HSBC India, the bank said it is terminating "private banking services to US persons and certain trusts and non-operating companies connected to US persons," the Wall Street Journal reported.

Customers have about a month to close their accounts, according to the letter.

An HSBC spokeswoman said a team of advisers “will help affected clients through the transition process”.

The report quoted a spokeswoman as saying that HSBC “will no longer offer wealth management services to US resident private clients from locations outside the US,”and that American clients “will be better served by our private banking teams in the United States”.

Those affected are hundreds of clients with accounts totalling as much as $100 million. “HSBC is ending the practice of serving wealthy American residents from locations outside the US as a way of cooperating with the US and avoiding the fate of rivals that were fined or threatened with prosecution for assisting tax scofflaws,” the report quoted people familiar with the matter as saying.

Federal authorities have also asked HSBC India to send letters to customers encouraging them to come forward to the IRS, the WSJ report said, adding that HSBC has complied with that request via a separate set of letters.

The IRS is offering reduced, yet stiff penalties for US taxpayers with secret offshore accounts who voluntarily report them.This programme is to end August 31.

The government said it is believed “many” of these clients “have hidden their accounts from the IRS”.

The move comes as the bank faces pressure from US authorities to provide information about account holders who may be evading taxes by using offshore accounts, particularly in India.

Earlier this year, US prosecutors had alleged that HSBC India helped US residents evade federal taxes.

Earlier this year, prosecutors had indicted an Indian-origin New Jersey businessman Vaibhav Dahake on charges that he conspired to evade US taxes by hiding offshore accounts in India maintained by HSBC.

Another Indian-American neurosurgeon was indicted in June by a federal grand jury for allegedly filing false tax returns and hiding more than $8.7 million in offshore accounts.

The Justice Department had in April asked a San Francisco federal court to let the IRS serve a “John Doe” summons on the Indian unit of HSBC seeking information about possible tax fraud “by people whose identities are unknown”

As many as 7% of account holders in the country are using the Internet for banking transactions, while branch banking has fallen by a full 15 percentage points, according to a report by global management consultancy McKinsey & Company.

"Use of the Internet for banking has seen a massive rise in the 2010-11 survey, taking the overall number of bank consumers who use the Net to close 7% of the total bank account holders -- a seven-fold jump since 2007 -- even as for the first time in the past 13 years, branch banking has come down by a full 15 percentage points during the same period," McKinsey & Company India partner and head of its retail banking services Renny Thomas said.

Thomas was talking to reporters after releasing a McKinsey India personal financial services survey 2011 here today. The percentage of online users of banking transactions was just about 1% in the agency's 2007 survey, Thomas added.

The survey is the result of one-on-ones with nearly 20,000 Asians covering the mass, mass-affluent and the affluent consumers across 13 markets, of which the largest survey pool was from India at 5,000 because of the sheer diversity of this market, Thomas said.

The survey is based on the number of times in a week respondents visited bank branches or used Internet for carrying out transactions.

In 2007, the number of times Indian respondents visited bank branch for doing transactions was 0.58 while the same in 2011 was 0.49, showing a fall of 15 percentage points.

Branch usage has dropped by 27% on an average across Asia between 2007 and 2011, while usage of the Internet and mobile banking have increased by 28% and 83%, respectively, says the survey, which was also conducted across the Asia-Pacific region.

When it comes to digital banking, the survey said, "India leads growth in Asia in mobile and Internet usage for banking. While there was a 15% decline in branch usage here, the growth in usage of the Internet and mobile banking has almost tripled."

"For the first time since we started this survey in 1998, we see a marked shift away from using branches as a main channel for interaction in many markets. This is a fundamental shift in consumer behaviour, and has significant implications for banks. The scale of branch network is a less decisive factor for capturing customers now," Thomas pointed out.

The survey also highlights a number of changes in consumer mindset when it comes to accessing financial services after the global financial crisis.

The worst casualty is loyalty as there is a full 40 percentage point drop in loyalty since 2007, though 95% are seemingly satisfied with their main banks, says associate partner Jatin Pant.

The average number of banking relationships across the country rose 19% from 1.4 in 2007 to 1.7 in 2011, while the average percentage of people willing to shop around rose 15, marking a greater willingness of consumers to vote with their feet and engage with a broader variety of financial institutions, the McKinsey survey said.

"While the consumers say they want to consolidate their banking relationships, they continue to shop around because banks are not delivering the products and services, such as frontline services, that can lock them in," it said.

When it comes to financial planning too, there is a marked progress with the percentage of consumers using financial planners soaring from 14% in 2007 to 43% in 2011, while the percentage of consumers willing to take risks on capital growth rose by 20% to 44%, up from 24%. At the same time, the survey says, dissatisfaction too rose with their financial planners.

"On an average, only 51% are satisfied with their financial planners in 2011, as compared to 73% in 2007," said Thomas.

Thiruvananthapuram: The Kerala government plans a crackdown on private microfinance institutions in the state in view of complaints that some of them are exploiting the public by charging high rates of interest, Chief Minister Oommen Chandy said here today.

A total of 43 cases had been registered against such institutions in different parts of the state, Chandy said in reply to a submission on the subject by V S Sunilkumar (CPI) in the assembly.

Strict legal action would be taken against institutions and individuals who exploit the people and also charge exhorbitant interest after lending loans, he said.

Tuesday, July 19, 2011

Mumbai: India's second largest private lender HDFC Bank today posted a 33.7 increase in net profit for the quarter ended June 30 to Rs 1,085 crore.

The Mumbai-headquartered bank's net profit for the corresponding April-June period last year was Rs 811.71 crore.

The bank's net interest income grew 18.6 per cent to Rs 2,848 crore while income from fees and commissions was up 15.9 per cent at 922.7 crore. It earned Rs 230 crore in foreign exchange revenues and weak bond markets saw the bank taking a Rs 41 crore hit on sale of investments.

Executive director Paresh Sukhtankar said it was able to maintain net interest margin at 4.2 per cent by holding on to the share of the cheaper CASA (current and savings account) deposits and passing hikes to borrowers as a large chunk of its loans are short term ones which allow easy repricing.

The bank's NIMs will be in the 3.9-4.3 per cent range going ahead, he said.

The bank's loan growth adjusted for the one-off, short term 3G auction advances during the same period last year stood at 29 per cent and 9.7 on a sequential (over the quarter ended March 31) basis, Sukhtankar said in a tele-conference.

Assuming the economy grows at 8 per cent, the overall banking industry's growth will be in the 18-20 per cent and HDFC Bank's credit growth for the year will be a few percentage points higher than that, Sukhtankar said, declining to give any specific number as a guidance.

Sukhtankar said given the present non-conducive environment, corporates are going slow on greenfield projects.

HDFC Bank's exposure to project finance is 4 per cent, he said, adding a majority of lending to corporates comes from working capital loans.

The bank's loan book, which is almost evenly spread between retail and corporate, also witnessed an improvement in asset quality with the net non-performing assets ratio coming down to 0.18 per cent as on June 30.

Sukhtankar said presently there are no signs of any concerns on the asset quality front and added that though there are no immediate concerns, it is cautious while lending to small businesses. The bank is monitoring its SME portfolio and will be diversifying its portfolio, he said.

Courtesy the infusion of Rs 3,650 crore in tier-II capital through raising 10 year money, the bank's total capital adequacy ratio improved to 16.9 per cent and Sukhtankar said regular lending will see it shaving-off by over one per cent before end FY 12.

The share of CASA in its total deposit base slipped by two percentage points to 49.1 per cent over last year, Sukhtankar said, adding that he expects it to be in the 46-50 per cent range going ahead as there are more migrations towards the fixed deposit schemes which have good returns.

He said the short term deposit rates have peaked while there is a room of around 25 bps hike in long term deposit rates going forward. The RBI is also at the end of its rate tightening cycle and will raise its key rates by 25 bps, but the timing of it -- whether it does in the announcement scheduled on July 26 or later remains to be seen.

New Delhi: Standard Chartered Private Equity on Tuesday said it has invested $56 million (about Rs 250 crore) in Ravi Jaipuria-promoted Varun Beverages International (VBIL), acquiring a “significant minority” stake in the bottling firm.

“VBIL has concluded a $56 million private equity financing with Standard Chartered Private Equity (SCPE). The funds would be used to accelerate VBIL's growth in its beverages business in India and overseas,” a joint statement by both the firms said.

VBIL, a part of RJ Corp, is the bottling and distribution partner of PepsiCo Inc in India, Sri Lanka, Nepal and Morocco.

The company has not disclosed how much the PE firm has acquired in VBIL. SCPE has denied reports that it has acquired five per cent stake in the RJ Corp firm but said it has “acquired a significant minority stake” in the company.

Induction of SCPE in group's core business of beverage shall help grow this business faster, he added. RJ Corp group is a diversified business conglomerate having interest in beverages, fast food restaurants, ice creams and dairy products, breweries, education, health care and hospitality.

The group is a long standing client of Standard Chartered Bank and there exists significant overlap between our geographic footprints. We look forward to a long term association with the Group and the Company,” SCPE Managing

Director and Global Co-Head Nainesh Jaisingh said.

SCPE is the private equity arm of Standard Chartered Bank and has invested over $2 billion in mid to late stage companies, the statement said.

New Delhi: The Supreme Court today directed SKS Microfinance, which has challenged the special act passed by the Andhra Pradesh government to regulate micro-finance institutions in the state, to amend its affidavit.

A bench of Justice Markandey Katju and Justice C K Prasad asked the SKS Microfinance to amend its affidavit within two weeks and the Andhra Pradesh government to file its reply.

"SKS Microfinance is granted permission to amend affidavit within two weeks from today. Four weeks' time, thereafter, is allowed to file reply to the additional affidavit filed by the SKS Microfinance herein," the bench said while listing the matter to September 26.

SKS Microfinance has challenged the special act of the Andhra government to regulate micro-finance institutions in the state after allegations that their high interest rates and strong-arm recovery methods led farmers to commit suicide.

SKS -- the country¿s largest and only listed micro finance company -- has submitted that the state government has no power to regulate the sector.

The state government had passed the Andhra Pradesh Micro Finance Institutions (Regulation of Money lending) Act, 2010, to ensure that it has oversight on the sector.

According to the SKS, micro finance sector falls under the central list and is not a state subject on which the Andhra Pradesh government could pass any act.

SKS further submitted that the state government can regulate only the money lending sector and not the Non Banking Finance Companies (NBFCs), which are registered by the banking sector regulator RBI.

The company also cited some recent studies on the micro- finance sector and contended that it was a central subject.

The Act empowers the state government to take action against micro-finance companies, if they violate provisions mentioned in the section 9 and 16 of the Act.

SKS has requested the Supreme Court to immediately quash the section 10 of the act, so that it can continue its operations in the state.

Mumbai: In a departure from roaring growth and profit numbers posted last year, two leading British lenders in the country, HSBC and Barclays, are on a cost-cutting spree, involving some retrenchments as they realign their operations.

While HSBC, which had recorded its best ever profit from its India operations last year, denied reports in a section of the media that it has asked as many as 150 people to pack up, Barclays India admitted that it has asked a few people to leave the organisation as part of its operational recast.

When contacted a Barclays spokesperson told PTI, "we have combined the client relationship teams in Barclays corporate and Barclays capital. As a result, the client servicing team will now report to the investment banking head here.

The move recognises the close alignment between these two businesses as they focus on serving the needs of the country's largest companies, MNCs and financial institutions, Barclays spokesperson said.

Jaideep Khanna will lead Barclays India's corporate and investment banking coverage team from now onwards. As a result of this strategy, there will be a small reduction in the number of corporate coverage and product bankers at Barclays.

The parent Barclays Plc is the second largest lender in Britain with 1.49 trillion pounds in assets, but Barclays India has only nine branches and 40 ATMs. Its total income for last fiscal was Rs 1,808 crore and it employs around 5,000 people in the country.

"However, the people impact is being managed to be kept to the minimum. For those affected by redundancy, they will receive a fair package in context of the market," the spokesperson said, adding "the realignment will be done in a phased manner over the next two months or so."

A Barclays source, who wished to stay anonymous, said that the number of people impacted will be one-third of the coverage or client relations team in the corporate banking business, which works out to be around 25 mid-level executives.

Meanwhile, the country¿s oldest and second largest MNC lender HSBC India, which had posted an a whopping 82 percent jump in its annual profit at Rs 3,070 crore million in 2010-- the largest earnings in its 145-year operational history here is also revamping its operations.

"There is no substance to reports that we have asked our people to leave. As part of our revamp process, we did in fact ask those employees in our loan recovery section to find new jobs within the bank, and not leave the organization. We are only re-deploying a section of our staff," said an HSBC India spokesperson.

Public sector lender IDBI Bank will float an infrastructure debt fund (IDF) to accelerate the flow of long-term resources for projects in sectors such as power, ports and roads. It may use the mutual fund route to start it.

R M Malla, chairman and managing director, said the bank had a definite interest in floating such a fund and the details were being worked on. He did not elaborate on size or details.

Being an erstwhile development finance institution, IDBI Bank has expertise in project appraisal and monitoring of large projects. This helps in examining the viability of projects, assessing risks and pricing loans. State Bank of India, ICICI Bank and Axis Bank are other lenders with strong in-house expertise for infrastructure projects.

Another IDBI Bank official said, “The government has given a choice to either use the asset management company (mutual fund) route or the non-banking finance company (NBFC) route to float an IDF. The bank already has an active mutual fund and this may become a vehicle to start the IDF.”

In the last week of June, the government came up with a framework for floating and regulating IDFs. These will have to be registered in India and monitored by one of the financial regulators. A trust-based IDF (mutual fund) will be regulated by the Securities and Exchange Board of India. Reserve Bank of India will oversee a fund set up as a NBFC. The investors in units floated by an IDF would primarily be domestic and offshore institutional investors, especially insurance and pension funds, who have long-term resources. Banks and financial institutions would only be allowed to invest as sponsors of an IDF.

An IDBI official said besides tapping offshore long-only investors, IDFs would also target local insurance and pension funds.

The government has announced tax benefits for investors in IDFs. Budget 2011-12 had said the witholding tax on interest payments on borrowings by IDFs would be reduced from 20 per cent to five per cent. The finance minister had also exempted income of the IDFs from income tax.

IDFs are expected to pick up part of the existing infrastructure loans of banks. This would free up the resources and capital of banks for fresh lending.

IDBI Bank’s outstanding portfolio of infra loans was Rs 20,000 crore. It could transfer part of the loans to IDF, subject to regulatory norms, said the official.

Infrastructure projects have a long pay-back period and need long-term financing to be sustainable and cost-effective. Banks, the main source of funding for these projects, are unable to provide long-term funding due to their asset-liability mismatch. Banks are also approaching their exposure limits. IDFs, through innovative means of credit enhancement, can provide long-term low-cost debt from insurance and pension funds.

Monday, July 18, 2011

MUMBAI: Large Indian lenders SBI, ICICI Bank, PNB and IDBI Bank are acting as a 'pressure group' to influence the functioning of the country's largest stressed assets firm, Arcil, according to the Reserve Bank of India .

The regulator's remark in the inspection report of Arcil puts a question mark on deals that banks cut with the asset reconstruction company to palm off their bad loans. The report has also pointed out a string of accounting and transaction irregularities in Arcil, whose main shareholders include SBI, ICICI Bank, PNB and IDBI Bank.

While the report does not highlight specific cases where these large institutions have used their influence, it categorically states: "The directors representing the sponsor institutions-SBI, ICICI Bank, IDBI Bank and PNB-were functioning as pressure groups to further sponsors' agenda; these directors were of late holding separate meetings and forwarding their brief to the company, which the company was supposed to place as agenda for discussion in the meetings of the board." The RBI said they were "controlling the functioning of the company in an indirect manner".

When contacted by ET, spokespersons and senior officials from ICICI Bank, IDBI Bank and SBI declined to comment. Banks sell bad loans to asset reconstruction companies like Arcil in exchange for cash or security receipts issued by the latter. So far, Arcil has acquired stressed assets with principal value of around Rs 24,000 crore from various banks, of which the highest-Rs 9,000 crore-is from the secondlargest lender by value, ICICI Bank.

The RBI said Arcil also inflated its earnings.

"The accounting policies of the company were modified very frequently during the period with the approval of the board and the latest change has resulted in inflating the profit of the company by Rs 84.48 crore as on March 31, 2010," it said. "Even the existing policies which provided for recognition of income on accrual basis and its reversal only if the same is not realised for more than two years were not in conformity with RBI guidelines which require the reversal of such income if it remains due for more than 180 days."

Arcil, in its response to ET, said, "The RBI has forwarded their initial observations to Arcil and sought our comments or response on the same." The matter is presently under discussion and Arcil will be shortly submitting its responses to RBI. It is, therefore, too early to arrive at any conclusion at this stage.

Further, these are regulatory matters and confidential in nature and Arcil is, therefore, not in a position to comment on specifics," Arcil added. The central bank believes the practices of Arcil and some of its shareholders in exploiting their position may erode credibility.

"This is a very serious issue having a bearing on the credibility of the accounting systems being followed by the company and its implications for protection of interest of the other stakeholders," the report said. The asset reconstruction firm is also charged of violating many prudential guidelines, including the powers assigned to recovery agents.

"The resolution procedure to be adopted by portfolio recovery agents was left to them and agents could obtain recoveries by way of settlement with the borrowers and/or sale of underlying assets," the report said adding the "strategy to be adopted being left to recovery agents. This was a gross violation".

Transactions with the state-run Indian Overseas Bank and ICICI Bank also find a mention in the central bank's report. In a portfolio acquired from Indian Overseas Bank, the due diligence was done in only 50 cases out of 1,40,000 cases, which was much 'lower than the contemplated ratio as per the policy guidelines evolved by the company', said the report.

On ICICI Bank, the RBI observed: "The company had purchased collection rights of the non-performing assets belonging to ICICI Bank by paying an amount upfront and assuring the bank of recovery of a particular amount which was not in conformity with the provisions of the SARFAESI Act." Arcil had also misled its own board and the accounting was dubious, says the central bank report.

"In a few cases, the information placed before the board was not factually correct," it said referring to instances where non-banking finance companies were referred to as qualified institutional buyers and in purchases of retail portfolio. The report also said, "Some large value accounts acquired 3-4 years back but in which there was no or minimal recovery till date were being treated by the company as resolved."

Arcil had stepped beyond its objective by even turning into a real estate developer in some cases, which is not its business. "In some cases, the company had actively involved itself in development of land forming part of secured assets of borrowers," the report said.

"Its active involvement may have indirect implication for compliance with regulatory guidelines."

MUMBAI: SBI Global Factors Ltd, a unit of State Bank of India , is looking to raise 1 billion rupees via 10-year bonds at 9.22 percent semi-annual coupon, a source with direct knowledge of the deal said on Monday.

MUMBAI: State-run lender Bank of Baroda is seeing credit offtake in general slowing down, while credit demand from infrastructure segment is not coming up, its Chairman and Managing Director said on Monday.

There are concerns regarding quality of credit given to the small and medium enterprises ( SME )) segment of the economy, M.D. Mallya told reporters.

On July 12, the lender increased its prime lending rate by 25 basis points to 14.5 percent.